Tuesday, June 29, 2010

FDIC Made Errors In Loss-Share Estimates - Watchdog

By Jessica Holzer

Dow Jones Newswires


    WASHINGTON -(Dow Jones)- A government watchdog has detected certain key deficiencies in the Federal Deposit Insurance Corp.'s internal controls that led to errors in the 2009 draft financial statements of the FDIC's deposit insurance fund that have been subsequently corrected.

    The weaknesses involve the FDIC's estimates for the cost to its insurance fund of so-called loss-sharing agreements it enters into with banks when there is a bank failure.

    Under such agreements, a healthy bank agrees to acquire essentially all the assets and deposits of a failed bank and the FDIC agrees to share in the losses on the assets.

    The FDIC has increasingly relied on such arrangements to protect its insurance fund against losses due to a surge in bank failures.

    The agency, however, failed to catch errors totalling $386 million in its estimates of the cost to its fund of the loss-sharing transactions, the Government Accountability Office said in a report released Monday.

    The errors were spread over 25% of the total 93 individual loss-share estimates for 2009.

    The FDIC, in a letter to the GAO, acknowledged the control weaknesses and said it was working to remedy them.

    "The FDIC believes that additional resources added throughout 2009, control improvements implemented during the fourth quarter of 2009, and control enhancements to be completed by the end of the second quarter of 2010 will largely address the GAO's concerns in this area," FDIC Chief Financial Officer Steven O. App wrote to the GAO.